In December, the American Bankruptcy Institute issued its Final Report and Recommendations of the Commission to Study the Reform of Chapter 11. The Report is almost 400 pages long and contains more than 200 recommendations. Twenty-two Commissioners, including attorneys, academics, financial advisors and a former bankruptcy judge spent more than two years taking testimony from over 90 additional restructuring experts and considering the reports provided by 13 advisory committees, each comprised of 10-12 members from the bankruptcy bench, the bankruptcy bar, the financial community and academia. The Commission developed the report with goals including: reducing barriers to entry for debtors, facilitating more efficient resolution of disputed matters, enhancing debtors’ restructuring options and creating an alternative restructuring scheme for smaller businesses.

The recommendations do not constitute proposed legislation. Rather, the Report represents the opinion of the Commissioners and will spur debate. It ultimately could help lead to comprehensive overhaul of the almost 40-year old Bankruptcy Code. Recognizing that major bankruptcy reform generally takes years to wind its way through Congress, the Report implicitly acknowledges that 2018 is an appropriate target date for reform.....

In This Publication:

- Issues Related to Confirmation of a Plan: Modifications to the Absolute Priority Rule

- Prohibition on Nonconsensual Gifting

- Eliminating “Cram-down” Requirement that a Plan be Approved by an Impaired Class of Claims

- Basing Cram-down Interest Rate On Market-Based Approach

- Financing Issues: Select Issues in Post-petition Financing: Roll-Up Post-Petition Financing and Milestones

- Calculating Collateral Value for Adequate Protection

- Asset Sales: 60 Day Moratorium on Sales of Substantially All Assets and Elimination of Potential Chilling Effect as “Cause” to Limit Credit Bidding

- Excerpt from Calculating Collateral Value for Adequate Protection:

Current State of the Law Secured -

creditors are entitled to “adequate protection” against diminution in the value of their collateral – including cash collateral. For example, if a debtor depletes collateral during the pendency of the bankruptcy, secured lenders are entitled to compensation. Under section 361 of the Bankruptcy Code, secured lenders can receive cash payments or replacement liens, or otherwise receive the “indubitable equivalent” of the value of the collateral (which is generally interpreted to include an equity cushion). Under current law and practice, when determining entitlement to adequate protection, a secured creditor values its collateral at a going concern value or fair market value, especially in a chapter 11 case with high prospects for a successful reorganization. Placing a higher value on the collateral at the outset of the case could result in creditors receiving greater adequate protection if they can demonstrate the case will cause depletion of that value.